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Orsted shares: a pure decarbonisation play for the next decade


The clean energy revolution is here, and it is only going to continue to gather speed. It is now just a question of separating the men from the boys. We have some very interesting potential future energy giants on the horizon, companies that have scopel to help re-draw the global energy landscape, and dominate the power agenda for decades to come.

This revolution is happening now. Orsted [LON:0RHE] is one of the poster children of this trend, what we call a pure decarbonisation play that is well-positioned to benefit from these trends. Danish-based Orsted is one of the world leaders in offshore wind farm technology, but is diversifying into onshore wind farms and other renewables, and expediting its exit from bread and butter power distribution in Denmark.

Orsted Q3 numbers ahead of expectations

Orsted just reported its Q3 numbers which were marginally ahead of consensus expectations. The company has clearly demonstrated how resilient it can be in the face of the COVID pandemic. It reported operating profit of DKK 13.1bn (£1.58bn), a 2% increase versus the same period a year ago. This was slightly ahead of consensus estimates. Earnings from Orsted’s offshore and onshore wind operation increased by 16% to DKK 11.6bn (£1.4bn).

“The construction of renewable projects is progressing satisfactorily and the company completed the divestments of its Danish power distribution, residential customer and city lighting businesses during the quarter,” observes Mark Nelson, an analyst with stock broker Killik & Co. “Guidance for the full year remains unchanged relative to that provided in the half year results.”

Killik & Co has reiterated its buy recommendation on the stock.

Like many other green energy stocks, Orsted saw a deep drop in its share price in March to 575 when it should probably have been trading at around 800-820. It broke 800 in July and hit a 52 week of 1072 in mid-October. Volumes remain much reduced compared to their Q1 levels. The PE ratio is at 26.37, but given the strategic positioning of this sector and our expectations of it, we think Orsted is still well positioned to benefit from massive future growth in green energy.

Not restricted to European operations

Orsted is not restricted to European operations – it has obvious global ambitions. It has recently acquired a 298MW wind farm called Haystack, located in Nebraska. This is expected to come online in Q4 2021. It represents a further diversification of Orsted’s existing portfolio of alternative energy assets, including onshore assets like Haystack.

The addition of Haystack Wind brings Orsted’s total onshore wind energy generation capacity to a staggering 3GW of capacity.

In a world where more and more large scale investors are going to be looking for pure play climate impact stocks, Orsted is likely to find itself in many pension fund portfolios in continental Europe. The green share of its heat and power has increased from 83% to 89% in the course of the quarter.

EBITDA guidance for Orsted for 2020 remains in the area of DKK 16-17bn. Gross investments are expected to be between DKK 28-30bn. Looking ahead, Orsted has also recently submitted bids for up to 2.5GW in New York and an outcome on those is expected before the end of the year. Bear in mind that we are about to have an election in the US; analysts believe a Joe Biden victory will see a major reversal on US federal government policies, and Orsted has obviously been focusing a lot of time and effort on developing its onshore US energy portfolio.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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